Any
sale is a good sale, right!

But is it? Not all sales will give the same return, and
for a small business, profitability is not optional.

How can
this be so?

One guru states
that businesses succeed because of high sales, that business starts with a
sale.

How could you argue
with that. Without a sale there can be
no cash flow, but that doesn't mean profits.
A sale just means you have cash coming into your business, and cash
going out. A sale doesn't mean you are
making profits, or at least sufficient profits.

As we said above,
not all sales give the same return.
Let's look at some scenarios where this could occur, but before we do
there is an underlying assumption. Most
small business owners and managers are pretty busy. They don't have a whole lot of spare time
they can devote to other areas.
Something has to give if they are to optimise the profits for their
business.

Not all market segments are as profitable as
others - do you know the
profitability of each market you are servicing?
If you don't it is always a very illuminating exercise to work it
out. If you do, and there is some
variation should you be concentrating on those niches which give you greater
returns? There are riches in niches.

Are you selling at less than optimal prices - so often a sale is made with money left
on the table? Do you price your products
on the value you provide to your customers, or on cost plus a margin? So many businesses undervalue the product or
service they provide because they don't understand their value. To what extent have you differentiated your
product or the experience you provide your customers? Your costs may have gone up, but have you
passed them on to your customers.

Are you concentrating on a ‘cash cow' and
ignoring a ‘star'? You probably know these terms. Cash cows are markets which can be milked
with very little effort. They may be
large but they are static, and competition has largely left them. Easy money, but no long term future. There may well be a star in your market
place, a segment with both great growth and profit potential. While you are milking the cash cow you may be
missing out on the star, and the future.

We've always done it this way, this is a
traditional market for us -
any time you hear a statement like this, warning bells should ring. The last time I looked, the world, and the
marketplaces have kept changing. And
they change with increasing speed. Just
think of the different types of printers you have hooked up to your computer
over the last few years. If you are
going to stay in a "traditional" market, you had better make sure your margins
are good, very good.

Why is
this a problem?

If you want your
business to be sustainable, that is if you want it to be on-going and able to
sustain the inevitable downturns that occur then you need to optimise profits,
not sales. Concentrating on sales and
not profits has an opportunity cost.

The opportunity
cost is the cost you incur in making the less than optimal sale against the profit
forgone from the more profitable opportunity.

People often do
this when they are worried about where the next job may come from. "I don't know where the next sale will come
from!"

All the time and
effort you are putting into your business has to be replicated again and again
if the sale is not leaving behind sufficient profits. It is a profit leak and needs to be
recognised as such. The case study on
our home page (http://www.profitsleakdetective.com)
is a perfect example of the change that can be achieved by concentrating on the
more profitable activities and letting go the less profitable.

There is a second
consideration. Even if you are on the
right track you can still be overtaken by your competitors. If your competitors have deeper pockets
because they are making more profitable decisions, or if they are working on
the ‘stars' while you are milking the ‘cash cows' they will come to dominate
your market place, at your expense!

So
what can you do about it?

Optimising the
profits for your business, as opposed to optimising sales, can be done, but a
little work is required. And you must
have some information, and knowledge.

Here are four
things that as a business owner or manager you can do:

Understand your market place - Remember that opportunities and threats
come from outside your business. You
need to have a very good understanding about what is happening, what are the
changes, where are the cash cows, and the stars.

Understand your market segments, very well - do you have a clear idea about what makes
up your customer's value equations? It
is rarely only price, but what are the additional factors what will allow you
to charge a price commensurate with that equation.

Take a helicopter view of your business - lay out a profitability map. Do you know the profitability of each of your
activities, at least down to the gross profit level? Once you know that and can see a
profitability map, optimisation becomes much easier.

Heed the warning bells - ‘we've always done it this way" should be
a warning bell to re-examine a traditional market or approach to a marketing
activity.

Overcoming the fear
of the impact of a price rise is easy, at least in hindsight, once you've done
it. Just do it, raise your prices by
whatever you are comfortable, plus a little.
As the best boss I ever worked for said, when the sales team were
shivering at the perceived impact of a price rise on their customers, "They can
always stand a price rise". And he was
right.

Optimising
profits not sales can be done

But you will need
some information, and to apply the information in your market place. Then you will see the difference.

So don't just take
any sale. Take the sale which is going
position your business for a long term sustainable, profitable future.

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Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?